With Buyer Tax Credit Over, What’s Next for Austin Real Estate

With the April 30th expiration of the home buyer tax credit, it’s time for buyers, Austin sellers and Austin Realtors to figure out what happens next. Austin Sellers who didn’t get offers might wonder, “are the buyers all gone now?” Austin Buyers who didn’t get their act together and claim the tax credit might wonder, “did I miss the boat?” Realtors in Austin are wondering if business might dry up as the market takes a breather while the hangover wears off. Here’s what I think.

Many Austin Sellers in the sub-$250K price ranges placed homes on the market earlier this year, sooner than they otherwise would have, hoping of course to catch the wave of tax credit buyers. This is something we encouraged, and rightly so, as many of these homes did in fact sell. These “timing opportunist” sellers include both motivated sellers and fair weather “let’s see what happens” sellers.

The latter group of sellers with unsold homes will start removing homes from the market fairly quickly as they’re already experiencing the early stages of  “seller fatigue”, and might now feel discouraged. They don’t really have to sell anyway, but would have if the right offer had come along. It just didn’t happen. If I’m right about this, the May real estate market stats for Austin will show a spike in Expired/Withdrawn listings.

The former group, those who still really need to or want to sell, will remain on the market, perhaps with price adjustments, but not necessarily. They may have less inventory to compete against as other withdraw, and that could hold prices up. It would be prudent for those sellers to remain patient and see what happens with showing traffic at least through June when the market would normally be in full swing.

Not every buyer is a first timer, and not every first timer was motivated to enter the fray early just to capture a tax rebate. Thus, as the normal, traditional selling season of May-August begins, it would be a mistake to think that the window has somehow been closed on good deals just because the tax credit has ended.

Interest rates remain at about 5%, which ought to be motivation enough in normal times not only for first time buyers but for move-up buyers as well. Fewer buyers will presumably be looking in the near term as, even with the tax credit motivation, some were unable to find a suitable home and will now stop looking entirely. So remaining buyers may have few buyers to compete against.

Also, I expect further price slippage in Austin this year before a sustained price increase cycle begins next year. It may be that those buyers who waited until this summer to buy might find fatigued and motivated sellers with whom to cut a deal. On the other hand, Austin sellers have remained surprisingly unwilling to capitulate en masse, as evidenced by the large number who simply withdraw from the market after saying “no thanks” to a string of lowball offers.

Other Factors
The tax credit was quite lengthy. The longer a government stimulus effort runs, the less “hangover” impact we see when it ends. The tax credit, notwithstanding the final rush to the finish line, had really begun petering out for the most part, and home prices in Austin have fallen every month (from the month before) this year even as the number of sales increased.

Timing is good. Though I griped on this blog about the stupidity of creating artificial off-season, off-cycle buyer demand, the expiration of the tax credit is timed perfectly with the beginning of the normal selling season. This should lessen the impact of the expiration of the tax credit.

Interest rates remain at historic lows. But rates will start to rise soon, if not immediately. As mentioned above, a 5% interest rate is an unbelievably extraordinary interest rate which, in and of itself, would normally excite buyers (both new and move-up) and get them out looking at homes. People under the age of 30 don’t know that, historically, 7% to 8% is a decent mortgage interest rate. Austin buyers have become so desensitized to a 5% rate that it is not, at present, serving as the motivational catalyst that it should. The government actions that have kept interest rates artificially low have also ended, and there is universal agreement that rates are on the way up. Once this sets in, and buyers begin to fear losing the opportunity for a rate in the fives, it will motivate buyers to get off the fence. By this time next year, rates should be in to 6%+ range.

Buyer Sentiment is improving. As national economic and real estate news heads toward a tipping point of net positive, this affects the mood of buyers. People are feeling that better times are closer ahead than before. Though odds of a double-dip fall in national home prices and the economy are high enough to postpone celebration, Austin will turn the corner this year and start adding jobs at an increasing rate, which will drive our real estate values higher by next year at the latest, and possibly sooner if interest rates rise faster and inventory shrinks quicker than expected.

Austin has a shortage of developed lots. Builders in Austin have already kicked up the home starts in anticipation of improved buyer demand moving forward. The pull back 3 years ago was such that we are left now with a shortage of developed lots in the pipeline. This, along with increasing materials costs will drive prices up new homes prices eventually, and resale home prices will follow. As with interest rates, the typical consumer responds better to fear of missing the train than they do the realization that things have already bottomed out and are really great right now. So when values start looking like they are entering a sustained climb, along with interest rate increases, this will generate buyer activity.

Those are my thoughts, somewhat rambling, somewhat contradictory. Still a lot of guesswork and unresolved factors to play out.

7 thoughts on “With Buyer Tax Credit Over, What’s Next for Austin Real Estate”

  1. I doubt rates will be 6%+ next year. Fear among investors has forced many to turn to fixed income investments, so just as our government stops buying mortgages, outside investors will. It’s already happening due to the Greek crisis.

    Also, buyer’s agents really should all take a stand against habitual low-ballers. If a seller is desperate enough to take a very low offer, they would have priced the house lower to begin with.

  2. Hi Jim,
    Why do you think interest rates won’t rise in the coming year? This is a universal prediction given the fact that rates are about 1% lower than they normally would be were it not for government intervention. Private investors are going to want higher return for their risk than the government was willing to accept.

    On the lowballs, I don’t mind low offers as long as the agent is up front about what they are trying to accomplish, or says “my buyer is looking for a very motivated seller”. But when I ask “which comps did you use to arrive at the offer price” and the agent can’t answer, or tries to BS me into thinking the offer is a good price, I lose respect. We normally don’t provide written counter-offers for those situations but simply say “you’d need to be closer to list price to receive a counter-offer”.

    When we send aggressive offers for our buyers, I’m up front with the listing agent and explain the outcome my buyer is trying to achieve. I’ll admit the offer is below market but try to sell the value of the other aspects of the offer, such as clean terms and conditions, quick/flexible close date, lease-back if seller needs it, short option period, etc. Some sellers do in fact value timing issues more than top dollar and you have to ask to find out.


  3. I’ve lowballed sellers who still have an empty house 6-12 months later. Is this really a buyer’s agent problem?

  4. Steve,

    What are your thoughts on the higher end of the market? 300K to 500K and 500K and above?

    Crickets chirping? Are jumbo loans still dead?

  5. Lowballing is most often a waste of time. Smart sellers who need to sell price correctly to begin with. Dumb seller won’t take reasonable or unreasonable offers and would rather tolerate vacancy.

  6. What exactly is a lowball offer? 15% or 20% or 5% less than list? I read somewhere years ago that historically the typical house sells for about 7% below list. So I would feel a fool to offer more than 90% of list.

  7. Hi Shireen, seems like everything is slower this month, though not dead.

    Sara – list price is not a relevant number to consider when making offers. Instead, you and/or your agent determine what you think the home is worth to you, and you make an offer. If the seller has priced the home well, and it’s a strong market, your blanket strategy of always offering 90% will never result in a purchase. In a slow market, you might have better luck, but you’re falsely assuming that a list price always has a predictable relationship with the true market value of a home.



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